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Cisco: Both Bull and Bear Having a Hard Time Believing the Growth Outlook

Shares of Cisco Systems (CSCO) today closed down 67 cents, or 2%, at $31.41, amidst the broad market decline, as analysts pondered what they heard at the company’s annual analyst day, which is held in conjunction with the company’s “Cisco Live!” customer and partner event in Las Vegas.

Analysts had been especially focused on what Cisco would say about its revenue and profit growth, as I wrote a week ago. The big takeaway is that Cisco revenue growth of 1% to 3% over the next three to five years, and EPS growth of “mid single digits,” but both bull and bear are having a hard time completely believing that outlook today.

The discussion was focused a lot on Cisco’s efforts to move to selling greater and greater amounts of software, and also to move more and more of its customers onto a subscription plan from the traditional product license.

Among the details, Kramer laid out in her deck of slides that the company’s revenue from software should reach 30% of total revenue by 2020, up from about 22% this year.

Recurring revenue will grow by 10% annually through 2020, of which 40% of the growth with come from products, the rest from services. That means 30% growth annually in products. Cisco aims to have more than 37% of its revenue ultimately be of a recurring nature.

Kramer said that about $2 billion of revenue has been subscription in nature, versus perpetual license...